Law:

Section:

Section 80HH of the income-tax act, 1961-Deductions-Profits and gains from newly established industrial undertakings, etc., in backward areas-Assessee-firm, engaged in process and export of sea-foods, earned some import entitlements granted by central government and subsequently sold them earning some profits-Whether such profits could be said to have been derived from industrial undertaking of assessee-Held, no. Words and phrases-'Derived from' occurring in section 80HH of the income-tax act, 1961 Facts During the assessment years 1975-76 and 1976-77, the assessee-firm was engaged in the process and export of prawns and other sea-foods. Under the Export Promotion Scheme, the Central Government granted some import entitlements to the assessee which it, subsequently, sold at a profit. The ITO allowed relief under section 80HH in respect of the entire receipts, inclusive of the sale proceeds of the import entitlements. The Commissioner, however, set aside the assessment and directed the ITO to re-do it after excluding the aforesaid sale proceeds. On appeal, the Tribunal rejected the assessee's contention that the import entitlements were secured in due course of business in the industrial undertaking and the profits there from must, therefore, fall for relief under section 80HH. On reference : Held The expression 'derived from', as judicially interpreted, has a definite but narrow meaning and it cannot receive a flexible or wider concept. Section 80HH is meant to give a tax rebate to certain categories of assessees and one who wants to claim such relief must strictly satisfy the requirements prescribed thereunder, he must establish that his profits and gains were derived from his industrial undertaking. It is just not sufficient if a commercial connection is established between the profits earned and the industrial undertaking. The law requires that such profits must have been derived from the industrial undertaking which must itself be the source of that profit. The business of that industrial undertaking must directly yield that profit. It must be the direct source of that profit and not a means to earn any other profit. In the instant case, the import…

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